The Greek austerity marathon

PM Lucas Papademos chaired marathon talks on Sunday

For months the Greek government has been negotiating over the terms of a second bailout. Deadlines and ultimatums are announced but come and go.

A date is approaching, however, when - if there isn't a deal - Greece faces bankruptcy. On 20 March Greece has to find 14bn euros (£12bn; $18bn) to service its debts. As things stand it does not have the funds.

Before it can contribute more to Greece, the IMF is obliged to show that the country's debts are on a sustainable path. By 2020, they want the country's debt to GDP ratio to have dropped from the current 160% to 120%.

There have been two strands to the negotiations.

First of all, private investors - mainly the banks - have been asked to accept losses of up to 70% on their investments. That should wipe 100bn euros from the Greek debt mountain of 360bn. The investors would exchange bonds for new ones worth less than half the value. They would not mature for 30 years.

There have been arguments over what interest rate these investors would settle for and that has caused some delay.

Election factor

But everything depends on the second part of any deal - agreement to further reduce Greek government.

Greek public sector employees have staged a series of protests against proposed austerity measures

The EU and the IMF have been exasperated that commitments made in the past have not been lived up to.

They want to see the Greek deficit reduced more swiftly - so they have been seeking further cuts of nearly 4bn euros. Their targets include cuts to the minimum wage, large lay-offs from the civil service, some cuts in pensions and a reduction in holiday payments.

Antonis Samaras, the leader of the second largest party, said on Sunday the measures would only deepen the recession and promised to oppose them "with all means".

Another of the party leaders, George Karatzafaris, said: "I will not contribute to the explosion of a revolution due to misery that will burn all of Europe."

Yet there is agreement to cut spending in principle and further talks will follow Monday.

The political leaders face elections in the months ahead, and are reluctant to be cast as the authors of further austerity. This is the fifth year the Greek economy has been contracting.

Faith lost

Europe's leaders, and in particular the Germans, have been putting the squeeze on the Greeks. They have made it clear they are running out of patience with them.

German Finance Minister Wolfgang Schaeueble said that "unless Greece implements the necessary decisions and doesn't just announce them - there's no amount of money that can solve the problem".

The Germans - and others - no longer believe the Greeks when they say they say they'll implement reforms. They want commitments in writing.

The problem is that the Greeks - who want to stay in the eurozone - have lost faith in austerity. They see their country in economic freefall. A point may have been reached - and the IMF has hinted at this - that further austerity measures may just be counter-productive.

The most likely outcome to all this is that a deal will be concluded.

A Greek default is still feared in Berlin because of the risk that the instability will spread and endanger other countries like Portugal and Ireland.

Greece's political leaders, too, fear the chaos that might follow a default.

But already the European Commission has said that even if a second bailout package is agreed it may not be enough.

A further 15bn euros will have to be found either from eurozone governments or perhaps from the European Central Bank. And even more funding may be needed down the road if the will to implement the reforms has gone.

In a paper for the Centre for European Reform, Katinka Barysch cites numerous examples of where the Greeks have failed to deliver. The troika of the IMF, the EU and the ECB demanded that Greece shrink its public sector by only replacing one out of every five people retiring but "between early 2010 and mid-2011, the government added 20,000 people to the public sector payroll".

A deal will buy time but Greece is a broken society with even middle-class people turning up among the growing number of homeless.

Everyone knows that years of austerity lie ahead.